Grant Thornton’s call to tackle supermarket “bully-boy tactics”

Supermarkets are finding “ever more ingenious ways” of extracting money from their suppliers in order to boost profit margins in an increasingly cut throat market, manufacturers have claimed.

Suppliers polled by Food Manufacture​ in the wake of a survey from business adviser Grant Thornton on supermarket “bully-boy tactics”, said retail buyers were trying “every trick in the book” to squeeze more cash from manufacturers.

One senior executive at an ambient goods firm added: “They are finding more and more ingenious ways to extract money from you. It’s quite an art. They are trying every trick in the book. But sometimes it’s not even subtle. Suppliers are simply paying them lump sums of money to secure business.”

One chilled food supplier told Food Manufacture​: “I don’t want to tar all buyers with the same brush, but I wouldn’t spit on some of them in the street - I am sick of their arrogance and tantrums. But they are doing it because they can. Fines are clearly being used a pure money-making exercise - they find something wrong with your product so that they can make some cash. That’s then deducted from you so if you do want to query it, you are always on the back foot trying to claw your own money back. Buyers have so much power, it’s beyond outrageous.”

Buyers at one supermarket were currently demanding reductions in costs from chilled suppliers, said one manufacturer. “There’s no fat left to cut. There’s no money for investment. After 30 years in the industry, I am really wondering whether I want to do this anymore. The supermarkets are calling all of the shots.”

According to Grant Thornton, two thirds of suppliers operated with no formal contract terms or formal notice periods with supermarkets, and almost 25% of those surveyed complained of having an order cancelled or significantly reduced within 72 hours of delivery.

A fifth reported that supermarkets regularly demanded credit for unsold goods, citing a range of reasons from apparent damage to their inability to sell them, and 22% claimed that supermarkets did not pay them on time.

Up to 25% of gross sales value was contributed back to supermarkets in the form of volume over-riders, discounts, promotional and marketing contributions or other payments, according to suppliers surveyed.

Duncan Swift, Head of Grant Thornton’s Food Agribusiness Recovery Group, said: “Not having contracts in place, no notice periods, orders cancelled at the eleventh hour and penny pinching clients who, through their market power constantly chip away at price, demand contributions and credits for unsold goods is no way to be running a successful business.

“It is downright unreasonable and, if not stopped, it will continue to cause trade distortions that ultimately impact on the consumer through reduced choice and product blandness.”

It was however possible to give suppliers more security by setting minimum contract terms such as 30 days’ notice of termination for each year of supply and payments made within 30 days, claimed Swift.